Donald Trump inauguration

Stock picks for the Trump era: winners and losers

Banks, insurers and commodities will win, while trading companies, shippers and manufacturers are likely to lose, analysts say

PUBLISHED : Friday, 13 January, 2017, 7:01pm
UPDATED : Friday, 13 January, 2017, 11:23pm

Companies in trading, telecommunications, car assembly, ports and airlines are likely to be the hardest hit when Donald Trump becomes the 45th president of the United States next week, as they stand to feel the brunt if he makes good on his campaign pledges to tax imports and relocate jobs back to America, analysts said.

Banking and finance are likely to be the biggest winners as the US Federal Reserve has foreshadowed three interest rate increases this year. Construction companies and builders would benefit from any investments in public works or infrastructure, while suppliers of commodities and resources might gain from any roll-back in environmental impact regulations, analysts said.

“Trump swept to victory promising to boost growth through tax cuts, public spending and deregulation,” Pictet Asset Management’s senior investment manager Shaniel Ramjee said in an interview with the South China Morning Post. “In a rising rate environment, banks and insurers will continue to do well. I’ll be cautious on heavy borrowers of US dollars or Hong Kong dollars as the yuan’s depreciation will mean rising financial burden.”

Trump, who rode to electoral victory on a wave of anti-establishment populism instead of his interest or grasp of public policies, will bring a new approach to policymaking. That’s putting analysts and economists on edge to assess how his campaign pledges may translate into policies and how these will affect how the world does business or trade with the largest global economy.

JPMorgan’s Asia Trump policyshort basket index tracks 30 of Asian stocks most likely to be hit by Trump’s trade policies, comprising companies based in Taiwan, mainland China, Hong Kong, South Korea and Australia.

IT companies, especially those involved in the manufacturing of consumer hardware such as Asustek Computer, Foxconn Technology, as well as semiconductor chip foundries like Taiwan Semiconductor Manufacturing Co, would be the hardest hit, said JPMorgan’s chief emerging markets and Asia equity strategist Adrian Mowat.

“Our conclusion is to be underweight in South Korea, Taiwan and Indian IT companies, Indian health-care and selected exporters to the US,” Mowat said. “We believe these sectors could underperform as investors become more aware of Trump’s trade policies.”

If Trump’s protectionist policies lead to a tit-for-tat series of retributions and trade disputes with China, the impact will be to shrink global commerce, which will hurt port operators, shipping and logistics companies such as Hong Kong-based Li & Fung, China Merchants Port Holdings and Cosco Shipping Ports.

“Li & Fung helps US brands source manufactured products globally and exports to the US, while Techtronic Industries, Yue Yuen Industrial (Holdings) and Prada manufacture in Asia to export to the US,” he said.

To be sure, not everybody believes Trump is anti-trade per se.

“Trump wants to have a trade relationship with China that creates US jobs while helping US companies gain wider access into the Chinese markets,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, with US$26 billion in assets under management, said in a phone interview with the Post.

“Even if Trump does introduce any change to the tax rules or trade agreement, it won’t happen immediately as change needs a long process,” said Mobius, who had been investing in China since 1987. “The market doesn’t need to worry too much in the near term.”

China’s technology, consumption and retail industries would enjoy a lot of growth in the coming year during Trump’s presidency, he said.

“The Chinese stocks that investors should avoid are the companies that only conduct trading between China and the US. They may face trade restrictions by the US,” Mobius said.

Trump’s plan to bolster US infrastructure spending might benefit China’s producers of commodities and materials, HSBC global asset management’s senior market specialist Grace Tam said.

“The US$1 trillion of incremental infrastructure investments over the next 10 years will potentially boost copper demand by roughly 400,000 tonnes,” she said.

“Financials are also beneficiaries. The steepening of yield curve should drive an improvement in the banks’ net interest margins. Given the surge in long-term yield, higher reinvestment yield will likely boost insurers’ investment gains, lessen the burden on earnings from lowering reserve charges and easing concern over high guaranteed-rate products.”

Still, Trump’s economic policies might bode ill for Asian exporters that were dependent on the US market, Standard Life Investments senior emerging markets economist Alex Wolf said.

The economic policies of the incoming president might lead to a strong US dollar and a weaker yuan, which in turn might help to boost Chinese exports to other markets in Asia and Europe, he said.

Tax cuts and other job creation policies might boost economic growth and inflation, which would be beneficial for Hong Kong’s banks and insurers, CIC Investor Services’ head of investment solutions Edmund Yun said.

“The internet sector will continue to benefit from broader usage from consumers and participants. The energy sector will gradually do fine as Trump’s policy will favour this sector as well.”

Given that the likelihood of tariffs of the exporters, Yun said his firm would prefer investing stocks whose earnings generated domestically such as the pharmaceutical sector.